Embed Size (px)
Citation preview
DARIUS DALE: MACRO TEAM
TACTICAL ASSET CLASS ROTATION MODEL
JANUARY 14, 2015
HEDGEYE 2
DISCLAIMER Hedgeye Risk Management is a registered investment advisor, registered with the State of Connecticut. Hedgeye Risk Management is not a broker dealer and does not provide investment advice to individuals. This research does not constitute an offer to sell, or a solicitation of an offer to buy any security. This research is presented without regard to individual investment preferences or risk parameters; it is general information and does not constitute specific investment advice. This presentation is based on information from sources believed to be reliable. Hedgeye Risk Management is not responsible for errors, inaccuracies or omissions of information. The opinions and conclusions contained in this report are those of Hedgeye Risk Management, and are intended solely for the use of Hedgeye Risk Management’s clients and subscribers. In reaching these opinions and conclusions, Hedgeye Risk Management and its employees have relied upon research conducted by Hedgeye Risk Management’s employees, which is based upon sources considered credible and reliable within the industry. Hedgeye Risk Management is not responsible for the validity or authenticity of the information upon which it has relied. TERMS OF USE This report is intended solely for the use of its recipient. Re-distribution or republication of this report and its contents are prohibited. For more detail please refer to the appropriate sections of the Hedgeye Services Agreement and the Terms of Use at www.hedgeye.com.
LEGAL
HEDGEYE 3
INTRODUCING TACRM
WHAT IS TACRM? TACRM is a quantitative model designed to systematically measure momentum across a variety of asset classes in order to transform those signals into actionable investment themes.
HOW DOES TACRM WORK? First, TACRM generates a normalized view of price momentum for every liquid market in the world. That momentum score is derived from a multi-factor, multi-duration approach and hencesoforth referred to as a Volatility-Adjusted Multi-Duration Momentum Indicator, or “VAMDMI” for short. Recall that our VAMDMI metric is simply the arithmetic mean of three independent z-scores of volume-weighted average price data, in which the three sample sizes (i.e. short-term, intermediate-term and long-term) accordion inversely to the trend in global financial market volatility. The metric is designed to standardize recorded momentum across securities and asset classes with variant betas, effectively normalizing the degree to which marginal investors might have a propensity to buy or sell a given market.
WHY IS TACRM VALUABLE FOR INVESTORS? By systematically analyzing these composite momentum scores, TACRM is able to produce actionable risk management signals. TACRM’s black-and-white quantitative signals remove the subjectivity from handicapping global macro risk(s), effectively providing investors with an unparalleled degree of market color that allows for unmatched decision-making in the tactical asset allocation process. TACRM provides global capital allocators the kind of consistent and actionable BUY/SELL signals needed to formulate or alter any investment mosaic.
1
2
3
HEDGEYE 4
SUMMARY INVESTMENT CONCLUSIONS
HEDGEYE 5
QUANTIFY: MOMENTUM
Across the spectrum of primary asset classes (i.e.
fixed income, equities, currencies, commodities,
cash and volatility), TACRM systematically quantifies
the momentum embedded in each of the individual exposures comprising
each asset class. Rather than rely on simple or exponential moving
averages, we employ a multi-factor, multi-duration
approach to quantifying momentum that we have found to be statistically
more robust.
DATA SOURCE: BLOOMBERG
UUP = 1.5x
VXX = 1.4x
BAL = -0.8x
BNO = -1.6x
CORN = -0.7x COW = -1.8x
DBA = -1.8x
DBB = -2.1x
DBC = -1.6x
FOIL = -1.3x
GLD = 0.9x
JJC = -2.2x
JJN = -1.5x
JO = -0.2x
NIB = 0.5x
PALL = 0.7x
RLY = -1.5x
SGG = -0.5x
SLV = 0.7x
SOYB = -1.3x
UGA = -1.6x
UNG = -1.4x
USO = -1.6x WDTI = 0.8x
WEAT = -0.9x
DIA = 0x
DXJ = -1.1x DXJS = -1.2x
EDEN = -1.2x
EFNL = -1.6x
EIRL = -0.7x
EIS = -1.3x
ENOR = -1.2x
ENZL = 0.2x
EUFN = -1.7x
EWA = -0.8x
EWAS = -0.5x
EWC = -1.7x
EWCS = -1.5x
EWD = -1.6x
EWG = -0.8x
EWGS = -0.7x
EWI = -1.6x
EWJ = -1.2x
EWK = -0.8x EWL = -0.9x
EWN = -1.1x EWO = -1.6x EWP = -1.8x
EWQ = -1.3x EWS = -1.5x
EWSS = -0.9x
EWU = -1.5x
EWUS = -1.5x
EZU = -1.4x
FILL = -1.5x
FPX = -0.4x
GDX = 0.8x
IAI = -0.4x
IBB = 1.2x IEZ = -1.5x IHE = 1.2x
IHI = 1x ITA = 0.5x
ITB = 0.9x
IWB = -0.4x IWD = -0.5x IWF = -0.4x
IWM = 0.1x
IWN = -0.3x
IWO = 0.4x
IWP = -0.3x IWR = -0.2x IWS = -0.2x
IWV = -0.4x IUSV = -0.5x IUSG = -0.3x
IYT = -0.7x KIE = -0.9x
KRE = -1.6x
MTUM = 0.1x
OEF = -0.6x
PFF = 0.3x
PGAL = -1.4x PICK = -1.6x
QEH = -0.6x
QMN = -1.4x
QQQ = -0.6x
SMH = -0.5x SPY = -0.5x
USMV = 0.6x VEGI = -0.9x
VLUE = -0.7x
XLB = -1x
XLE = -1.5x
XLF = -0.7x
XLI = -0.6x
XLK = -0.5x
XLP = 0.7x
XLV = 0.8x
XLY = 0.1x
XOP = -1.4x
XRT = 0.6x
XTL = -0.6x
AAXJ = 0.2x
ARGT = -1.6x
CAF = 1x
CHIQ = -0.7x
CHIX = 1.2x
CQQQ = -0.7x
ECH = -1.6x
ECNS = -0.4x
EEM = -0.5x
EGPT = -0.9x
EIDO = -0.9x
EPHE = 1.9x
EPI = 0.2x EPOL = -1.3x
EPU = -1.8x
EWH = 0.4x
EWHS = -0.6x
EWM = -1.3x
EWT = -1.1x
EWW = -1x
EWY = 0.2x
EWZ = -1x
EWZS = -1.5x
EZA = 0x
FXI = 1.4x GAF = 0x
GMF = -0.1x GML = -1.3x GUR = -1.4x
ICOL = -1.2x
NGE = -1.5x RSX = -1.3x
SMIN = 1.2x
THD = -0.7x
TUR = 1.2x
VNM = -1.1x
AGG = 1.8x
ALD = -0.6x
AMLP = -1.9x
BKLN = -0.7x
BND = 1.8x
BNDX = 1.8x BWX = -1.1x
BWZ = -1.4x
EDV = 1.9x
EMB = -1x
EMCB = -1.2x EMLC = -1.1x
EU = -1.6x
FLAT = 2x
IBND = -1.5x
IHY = -0.8x
IYR = 1.7x
JNK = -0.5x
LQD = 1.9x MUB = 2x
QAI = -1.2x
RWX = 0.6x
SHY = 1.3x
STPP = -1.9x
TIP = 0.2x TLT = 1.9x
VNQ = 1.8x
WIP = -0.7x
XLU = 0.8x
ZROZ = 2x
AYT = -0.1x BZF = -0.2x
CCX = -1.1x CEW = -1.1x
CYB = -0.1x
FXA = -0.7x
FXB = -1.5x
FXC = -1.8x FXE = -1.6x
FXF = -1.6x
FXS = -1.5x
FXY = 0.1x
ICN = 0.8x
-2.0x
-1.5x
-1.0x
-0.5x
0.0x
0.5x
1.0x
1.5x
2.0x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x
y-a
xis
: De
lta
fro
m T
railin
g 3
M A
ve
rag
e
x-axis: Delta from Trailing 6M Average
TACRM GLOBAL MACRO MOMENTUM MONITOR
Current Volatility-Adjusted Multi-Duration Momentum Indicator Score
HEDGEYE 6
QUANTIFY: MOMENTUM (CONTD.)
DATA SOURCE: BLOOMBERG
HEDGEYE 7
QUANTIFY: EXTREME MOMENTUM
Quantifying extremes in momentum at the
secondary asset class level can help investors front-run major rotations in flows at
the primary asset class level. Akin to a sand
pyramid, it is impossible to know on a prospective
basis which incremental grain of sand will be
responsible for collapsing the pyramid, but we as
investors have a duty to consistently identify and
take advantage of the stresses in the chaotic
system that is the global financial marketplace.
DATA SOURCE: BLOOMBERG
2.0x 2.0x
2.0x 1.9x 1.9x 1.9x 1.9x
1.8x 1.8x 1.8x 1.8x
1.7x 1.5x
1.4x 1.4x
1.3x 1.2x
1.2x 1.2x 1.2x
-1.6x -1.6x -1.6x -1.6x -1.6x -1.6x -1.6x -1.6x -1.6x -1.7x
-1.7x -1.8x
-1.8x -1.8x -1.8x -1.8x
-1.9x -1.9x
-2.1x -2.2x
-2.5x -2.0x -1.5x -1.0x -0.5x 0.0x 0.5x 1.0x 1.5x 2.0x 2.5x
(MUB) iShares National AMT-Free Muni Bond ETF (FLAT) iPath US Treasury Flattener ETN
(ZROZ) PIMCO 25+ Year Zero Coupon US Treasury Bond ETF (TLT) iShares 20+ Year Treasury Bond ETF
(LQD) iShares iBoxx $ Investment Grade Corporate Bond ETF (EDV) Vanguard Extended Duration Treasury ETF
(EPHE) iShares MSCI Philippines ETF (BND) Vangaurd Total US Bond Market ETF
(VNQ) Vanguard REIT ETF (BNDX) Vangaurd Total International Bond Market ETF
(AGG) iShares Core US Aggregate Bond ETF (IYR) iShares US Real Estate ETF
(UUP) PowerShares DB US Dollar Index Bullish Fund (VXX) iPATH S&P 500 VIX Short-Term Futures ETN
(FXI) iShares China Large-Cap ETF (SHY) iShares 1-3 Year Treasury Bond ETF
(IHE) iShares U.S. Pharmaceuticals ETF (CHIX) Global X China Financials ETF
(IBB) iShares Nasdaq Biotechnology ETF (TUR) iShares MSCI Turkey ETF
(PICK) iShares MSCI Global Metals & Mining Producers ETF (ARGT) Global X FTSE Argentina 20 ETF
(UGA) United States Gasoline Fund (ECH) iShares MSCI Chile Capped ETF
(EU) WisdomTree Euro Debt Fund (FXE) CurrencyShares Euro Trust
(DBC) DB Commodity Index Tracking Fund (BNO) United States Brent Oil Fund
(FXF) CurrencyShares Swiss Franc Trust (EWC) iShares MSCI Canada ETF
(EUFN) iShares MSCI Europe Financials ETF (EWP) iShares MSCI Spain Capped ETF
(EPU) iShares MSCI All Peru Capped ETF (FXC) CurrencyShares Canadian Dollar Trust
(COW) iPath Dow Jones-UBS Livestock Total Return Sub-Index ETN (DBA) PowerShares DB Agriculture Fund
(AMLP) Alerian MLP ETF (STPP) iPath US Treasury Steepener ETN
(DBB) PowerShares DB Base Metals Fund (JJC) iPath Exchange Traded Notes Dow Jones-AIG Copper Total Return Sub-Index …
Extreme Momentum (Top-20 and Bottom-20 VAMDMI Readings)
HEDGEYE 8
QUANTIFY: ASSET CLASS ROTATIONS
DATA SOURCE: BLOOMBERG
By calculating the spread between individual
VAMDMI readings greater than +1x and readings less than -1x within each of the primary asset classes and subsequently normalizing these spreads to a 100pt. scale, TACRM can then dynamically generate
estimates for how much passive investors are
over/under exposed to a particular primary asset
class according to the relative levels of
momentum embedded within each asset class.
Any deviation from trend in these weightings can be
said to represent the presence of rotation-based
capital flows.
Fixed Income & Yield Chasing = 21%
DM Equities = 23%
EM Equities = 11%
Foreign Exchange = 1%
Commodities = 8%
Cash = 35%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
-150% -100% -50% 0% 50% 100% 150% 200%
y-a
xis
: De
lta
fro
m T
railin
g 3
M A
ve
rag
e
x-axis: Delta from TTM Average
TACRM ASSET CLASS ROTATION MONITOR
Passive Trend Follower Asset Allocation
HEDGEYE 9
QUANTIFY: ASSET CLASS ROTATIONS
DATA SOURCE: BLOOMBERG
Fixed Income & Yield Chasing = 21%
DM Equities = 23%
EM Equities = 11%
Foreign Exchange = 1%
Commodities = 8%
Cash = 35%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
70%
75%
80%
85%
90%
95%
100%
105%
110%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100% 105% 110%
y-a
xis
: Cu
rre
nt
Pa
ssiv
e T
ren
d F
ollo
we
r A
sse
t A
llo
cati
on
on
a P
erc
en
tile
B
asi
s (1
Y)
x-axis: Current Passive Trend Follower Asset Allocation on a Percentile Basis (5Y)
TACRM ASSET CLASS ROTATION MONITOR
Passive Trend Follower Asset Allocation
By calculating the spread between individual
VAMDMI readings greater than +1x and readings less than -1x within each of the primary asset classes and subsequently normalizing these spreads to a 100pt. scale, TACRM can then dynamically generate
estimates for how much passive investors are
over/under exposed to a particular primary asset
class according to the relative levels of
momentum embedded within each asset class.
Any deviation from trend in these weightings can be
said to represent the presence of rotation-based
capital flows.
HEDGEYE 10
QUANTIFY: STYLE FACTOR MOMENTUM
Observing trends in momentum within the U.S.
equity market can help investors front-run major shifts in performance at
the style factor level. Knowing which sectors and style factors to over/under-weight is yet another way
TACRM helps investors beat index beta.
DATA SOURCE: BLOOMBERG
1.80x 1.22x
1.17x 0.96x
0.91x 0.82x 0.81x
0.77x 0.70x
0.64x 0.58x
0.48x 0.41x
0.29x 0.12x
0.08x 0.07x
0.00x -0.18x -0.19x
-0.25x -0.31x -0.33x
-0.38x -0.40x
-0.42x -0.44x -0.44x -0.45x -0.45x -0.46x
-0.48x -0.50x
-0.61x -0.61x -0.63x -0.64x
-0.67x -0.67x -0.68x
-0.87x -0.98x
-1.40x -1.49x
-1.54x -1.56x
-1.92x
-2.50x -2.00x -1.50x -1.00x -0.50x 0.00x 0.50x 1.00x 1.50x 2.00x
(VNQ) Vanguard REIT ETF (IHE) iShares U.S. Pharmaceuticals ETF
(IBB) iShares Nasdaq Biotechnology ETF (IHI) iShares U.S. Medical Devices ETF
(ITB) iShares U.S. Home Construction ETF (XLU) Utilities Select Sector SPDR Fund (GDX) Market Vectors Gold Miners ETF
(XLV) Health Care Select Sector SPDR Fund (XLP) Consumer Staples Select Sector SPDR Fund
(XRT) SPDR Retail ETF (USMV) iShares MSCI USA Minimum Volatility ETF
(ITA) iShares U.S. Aerospace & Defense ETF (IWO) iShares Russell 2000 Growth ETF
(PFF) iShares US Preferred Stock ETF (IWM) iShares Russell 2000 ETF
(XLY) Consumer Discretionary Select Sector SPDR Fund (MTUM) iShares MSCI USA Momentum Factor ETF
(DIA) SPDR Dow Jones Industrial Average ETF Trust (IWR) iShares Russell Mid-Cap ETF
(IWS) iShares Russell Mid-Cap Value ETF (IWP) iShares Russell Mid-Cap Growth ETF
(IWN) iShares Russell 2000 Value ETF (IUSG) iShares Russell 3000 Growth ETF
(IAI) iShares U.S. Broker-Dealers ETF (IWF) iShares Russell 1000 Growth ETF
(IWB) iShares Russell 1000 ETF (IWV) iShares Russell 3000 ETF
(FPX) First Trust U.S. IPO Index Fund (XLK) Technology Select Sector SPDR Fund
(SMH) Market Vectors Semiconductor ETF (IUSV) iShares Russell 3000 Value ETF
(SPY) SPDR S&P 500 ETF Trust (IWD) iShares Russell 1000 Value ETF
(XTL) SPDR S&P Telecom ETF (OEF) iShares S&P 100 ETF
(QQQ) PowerShares NASDAQ Trust (ETF) (XLI) Industrial Select Sector SPDR Fund
(IYT) iShares Transportation Average ETF (XLF) Financial Select Sector SPDR Fund
(VLUE) iShares MSCI USA Value Factor ETF (KIE) SPDR Insurance ETF
(XLB) Materials Select Sector SPDR Fund (XOP) SPDR S&P Oil & Gas Exploration & Production ETF
(IEZ) iShares U.S. Oil Equipment & Services ETF (XLE) Energy Select Sector SPDR Fund (KRE) SPDR S&P Regional Banking ETF
(AMLP) Alerian MLP ETF
U.S. Equity Style Factor VAMDMI Ranker
HEDGEYE 11
FORECAST MARKET BETA IN FIXED INCOME & YIELD CHASING INSTRUMENTS?: CHECK
DATA SOURCE: BLOOMBERG
95
97
99
101
103
105
107
109
111
113
0
1
2
3
4
5
6
7
8
9
TACRM Investment Recommendation: INCREASE Exposure to Fixed Income & Yield Chasing
TACRM Investment Recommendation: DECREASE Exposure to Fixed Income & Yield Chasing
Barclays Aggregate Bond Index (rhs)
HEDGEYE 12
FORECAST MARKET BETA IN DEVELOPED MARKET EQUITIES?: CHECK
DATA SOURCE: BLOOMBERG
600
800
1,000
1,200
1,400
1,600
1,800
0
1
2
3
4
5
6
7
8
9
TACRM Investment Recommendation: INCREASE Exposure to DM Equities
TACRM Investment Recommendation: DECREASE Exposure to DM Equities
MSCI World Index (rhs)
HEDGEYE 13
FORECAST MARKET BETA IN EMERGING MARKET EQUITIES?: CHECK
DATA SOURCE: BLOOMBERG
450
550
650
750
850
950
1,050
1,150
1,250
0
1
2
3
4
5
6
7
8
9
TACRM Investment Recommendation: INCREASE Exposure to EM Equities
TACRM Investment Recommendation: DECREASE Exposure to EM Equities
MSCI Emerging Markets Index (rhs)
HEDGEYE 14
FORECAST MARKET BETA IN FOREIGN EXCHANGE?: CHECK
DATA SOURCE: BLOOMBERG
23
24
25
26
27
28
29
30
0
1
2
3
4
5
6
7
8
9
TACRM Investment Recommendation: INCREASE Exposure to Foreign Exchange
TACRM Investment Recommendation: DECREASE Exposure to Foreign Exchange
PowerShares-DB US Dollar Index Bearish Fund (rhs)
HEDGEYE 15
FORECAST MARKET BETA IN COMMODITIES?: CHECK
DATA SOURCE: BLOOMBERG
180
230
280
330
380
430
480
0
1
2
3
4
5
6
7
8
9
TACRM Investment Recommendation: INCREASE Exposure to Commodities
TACRM Investment Recommendation: DECREASE Exposure to Commodities
CRB Index (rhs)
HEDGEYE 16
FORECAST MARKET BETA IN CA$H?: CHECK
DATA SOURCE: BLOOMBERG
10
20
30
40
50
60
70
80
0
1
2
3
4
5
6
7
8
9
TACRM Investment Recommendation: INCREASE Exposure to Cash TACRM Investment Recommendation: DECREASE Exposure to Cash
CBOE S&P 500 Volatility Index (VIX)
